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Report No. 240

4.2 Section 35 ("Costs")

(a) Costs under Section 35 is aimed at reimbursement of reasonable litigation expenses to the successful party. The cost to be awarded under various heads should be realistic and a just equivalent of the expenditure supposed to have been incurred by a litigant.

(b) Section 35 lays down two principles (1) the costs of an incident to all suits shall be in the discretion of the court. The court shall have full power to determine by whom or out of property and to what extent such costs are to be paid. (2) where the court directs that the costs shall not follow the event, specific reasons must be recorded by the court.

(c) Section 35(1) provides that "subject to such conditions and limitations as may be prescribed and to the provisions of any law for the time being in force, the costs of and incident to all suits shall be in the discretion of the Court". The sub-section further provides that the Court shall have full powers to determine by whom or out of what property and to what extent such costs are to be paid.

(d) The sub-section (2) lays down: "Where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing".

Sub-section (2) is indicative of the legislative policy that ordinarily costs shall be awarded to the party who succeeds and if it is otherwise, the Parliament requires the court to record reasons for disallowing costs. Very often, the rule that costs should follow the event is observed in breach. Many of the cases are disposed of either by saying "no order as to costs" or "parties to bear their own costs." When the Court, especially the superior costs, disallow costs or say 'no order as to costs', reasons are seldom recorded. Such cryptic directives do not contain anything which indicate the mind of the Court as to why costs are being disallowed.

There are also instances where the High Courts and the Supreme Court have been directing costs to be paid to a body other than a party to the proceeding, for e.g., a charitable organization or legal services authority, which practice is disapproved in some judgments while in others it is so done. Judgments of the Hon'ble Supreme Court wherein costs are awarded or not allowed, do not give any indication of any underlying principle and no guideline or rationale can be deduced therefrom. The illustrative cases which go to substantiate this contention are furnished in Annexure-I.

(e) Costs are intended to reasonably compensate a party to the litigation for the expenses incurred by him. A party resorting to litigation to vindicate his rights or seeking redressal of the wrong done by the other side or a party dragged to court unnecessarily should be able to recoup at least reasonable expenses incurred by him when he succeeds in the case. It implies that the quantum of costs awardable should be realistic and reasonably sufficient to cover the cost of litigation.

(f) The Supreme Court, in Salem Advocate Bar Association v. Union of India [(2005 6 SCC 344)], noticed that "unfortunately, it has become a practice to direct parties to bear their own costs" and that wherever costs are awarded, ordinarily the same are not realistic and are nominal.

While referring to Section 35(2), the Court expressed the view that "when section 35(2) provides for costs to follow the event, it is implicit that the costs have to be those which are reasonably incurred by a successful party...[and that] costs have to be actual reasonable costs including cost of the time spent by the successful party, the transportation and lodging if any, or any other incidental costs besides the payment of court fee, lawyer's fee, typing and other costs in relation to the litigation. The Court observed that [...] the High Courts should examine these aspects and make requisite rules, regulations or practice directions so as to provide appropriate guidelines for the subordinate Courts to follow."

(g) In the said judgment, the Court referred to Model Rules for costs prepared by a Committee headed by the then Chairman of Law Commission. The 'Model Rules' are in the nature of guiding principles. The relevant principle concerning the award of costs by trial Courts is as under:"

"8. Costs:- So far as awarding of costs at the time of judgment is concerned, awarding of costs must be treated generally as mandatory inasmuch as the liberal attitude of the courts in directing the parties to bear their own costs had led parties to file a number of frivolous cases in the courts or to raise frivolous and unnecessary issues. Costs should invariably follow the event.

Where a party succeeds ultimately on one issue or point but loses on a number of other issues or points which were unnecessarily raised, costs must be appropriately apportioned. Special reasons must be assigned if costs are not being awarded. Costs should be assessed according to rules in force. If any of the parties has unreasonably protracted the proceedings, the Judge should consider exercising discretion to impose exemplary costs after taking into account the expenses incurred for the purpose of attendance on the adjourned dates." (Page 396)

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